Meaning Of Assets: Fixed Assets And Current Assets

An asset are properties of a business. It can be defined as something bought by a company to increase its value, productivity and income, or to help benefit the company’s overall operations.

Assets = Liabilities + Capital (which for a corporation equals owner's equity)
Assets are listed on the balance sheet. On a company's balance sheet certain divisions are required by generally accepted accounting principles (GAAP), which vary from country to country.
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Examples of assets include:
  • Cash and cash equivalents
  • Inventory
  • Investments
  • PPE (Property, Plant, and Equipment)
  • Land
  • Buildings
  • Vehicles
  • Furniture
  • Patents
  • Stock
  • Equipment
PROPERTIES OF AN ASSET
There are three key properties of an asset:
Ownership: Assets represent ownership that can be eventually turned into cash and cash equivalents.
Economic Value: Assets have economic value and can be exchanged or sold.
Resource: Assets are resources that can be used to generate future economic benefits.

CLASSIFICATION OF ASSETS
Assets are generally classified in three ways:
1. Convertibility: Classifying assets based on how easy it is to convert them into cash.
2. Physical Existence: Classifying assets based on their physical existence.
3. Usage: Classifying assets based on their business operation usage.

CLASSIFICATION OF ASSETS: CONVERTIBILITY
If assets are classified based on their convertibility into cash, assets are classified as either current assets or fixed assets.

1. Current Assets
Current assets are assets that can be easily converted into cash and cash equivalents (typically within a year). Current assets are also termed liquid assets and examples of such are:
  • Cash
  • Cash equivalents
  • Short-term deposits
  • Stock
  • Marketable securities
  • Office supplies
2. Fixed or Non-Current Assets
Non-current assets are assets that cannot be easily and readily converted into cash and cash equivalents. Non-current assets are also termed fixed assets, long-term assets, or hard assets. Examples of non-current or fixed assets include:
  • Land
  • Building
  • Machinery
  • Equipment
  • Patents
  • Trademarks
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CLASSIFICATION OF ASSETS: PHYSICAL EXISTENCE
If assets are classified based on their physical existence, assets are classified as either tangible assets or intangible assets.

1. Tangible Assets
Tangible assets are assets that have a physical existence (we can touch, feel, and see). Examples of tangible assets include:
  • Land
  • Building
  • Machinery
  • Equipment
  • Cash
  • Office supplies
  • Stock
  • Marketable securities
2. Intangible Assets
Intangible assets are assets that do not have a physical existence. Examples of intangible assets include:
  • Goodwill
  • Patents
  • Brand
  • Copyrights
  • Trademarks
  • Trade secrets
  • Permits
  • Corporate intellectual property

CLASSIFICATION OF ASSETS: USAGE
If assets are classified based on their operational usage, assets are classified as either operating assets or non-operating assets.

1. Operating Assets
Operating assets are assets that are required in the daily operation of a business. In other words, operating assets are used to generate revenue. Examples of operating assets include:
  • Cash
  • Stock
  • Building
  • Machinery
  • Equipment
  • Patents
  • Copyrights
  • Goodwill
2. Non-Operating Assets:
Non-operating assets are assets that are not required for daily business operations but can still generate revenue. Examples of non-operating assets include:
  • Short-term investments
  • Marketable securities
  • Vacant land
  • Interest income from a fixed deposit